Idea, Vodafone stretch books with $2 bn bids each on 4th day of auction

KOLKATA: Idea Cellular and Vodafone India are likely to see their balance sheets stressed with both reckoned to have put in $2 billion-plus bids each to primarily buy 4G airwaves with 3G toppings, fourth day into the auctions.

Analysts and industry experts expect Idea and Vodafone India’s “net debt to Ebitda” -- a key metric for a stretched balance sheet -- to rise to four times, double the ideal level, once their new spectrum purchases get factored in.

Brokerage CLSA expects the ongoing spectrum auction to boost Idea and Vodafone’s 3G/4G airwave holdings, but warned that their balance sheets could be further burdened with “an estimated high gearing of 4 times net debt-to-Ebitda.”

Such a scenario would typically mean Idea and Vodafone would have to borrow more, increasing their debt-equity ratios further, said a top executive at a Big 4 consultancy firm.

An analyst at a global brokerage agreed that borrowings towards fresh spectrum debt can further jack up Idea and Vodafone’s interest costs, hit cash flows and potentially restrict their capex plans towards 4G network rollouts in coming months.

Vodafone India and Idea did not reply to ET's queries.

Second-largest carrier, Vodafone and third-ranked Idea are looking to increase their 4G spectrum holdings to bridge the gap with rivals Bharti Airtel and Reliance Jio Infocomm, who already have pan-India holdings. Over the past four days, both have been focusing mainly on the 4G bands of 2300 Mhz and 1800 Mhz, skirting the coveted but far more expensive 4G airwaves in the 700 Mhz band.

Industry experts, however, said the balance sheet impact of the ongoing auctions on Vodafone “would not be as pronounced” as Idea, since the UK-based mobile carrier recently did a huge Rs 47,700 crore ($7.1 billion approx) equity infusion to clean up its Indian unit’s balance sheet and improve leverage to borrow more.

While Vodafone India’s net debt has more than halved to Rs 34,300 crore following the UK parent’s mega equity infusion, Idea’s net debt as on June 30, 2016, stood at Rs 37,657.9 crore.

India’s No 3 carrier reported a 185% increase in its interest costs, while its depreciation & amortization costs had risen 36% in the April-June quarter.

Analysts aren’t ruling out some balance sheet stress for market leader Bharti Airtel as well, which is also reckoned to have put in Rs 13,000 crore (under-$2 billion) on new 4G/3G spectrum purchases in the ongoing sale.

Brokerage CLSA, however, said Airtel is better placed, given its lead on spectrum, network and fibre.

Idea Cellular shares ended the day 1.5% lower at Rs 79.95 on the Bombay Stock Exchange, under-performing the broader Sensex which closed down 0.4%. Shares in Bharti Airtel ended down 0.7% while Reliance Communications' scrip lost 0.4%.